Asia Falls on Dubai World; Yen Surges
November 27, 2009 by admin
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By Matthew Allen and Wei-Zhe Tan from Wall Street Journal, 27
November 2009
Asian stock markets declined Friday, with financial shares bearing
the brunt of losses as investors worried about banks’ exposure to
Dubai World’s debt.
Curencies perceived as risky were also sold off as Dubai World, the
city-state’s largest corporate entity, Wednesday asked creditors
for a six-month standstill on debt repayments of $59 billion.
Investors piled into safe-haven bets like the yen, which rose to a
fresh 14-year high against the U.S. dollar and hurt Japanese export
stocks.
Japan’s Nikkei 225 Average fell 3.2% to 9081.52, its lowest close
since July, Australia’s S&P/ASX 200 ended down 2.9%, South
Korea’s Kospi dropped 4.7% and Taiwan’s Taiex gave up 3.2%.
Hong Kong’s Hang Seng Index dropped 4.8% in late trading and
China’s Shanghai Composite lost 2.4%, while India’s Sensex gave up
3.7%.
Dow Jones Industrial Average futures plunged 297 points lower in
screen trade. Markets in Singapore, Malaysia and Indonesia were
shut for a holiday
Patrick Bennett, Asia rates strategist at Societe Generale said:
“Fallout from Dubai World seeking a debt moratorium has been broad.
It is not the amount involved ($59 billion) but potential contagion
that will drive markets.”
Financials across the region took a hit as investors became jittery
about banks’ potential exposure to Dubai World’s debt, and other
debt issued in Dubai. Major banks in Australia were all down
sharply, with National Australia Bank down 4% and Westpac Banking
Corp. down 3.8%.
In Hong Kong, HSBC fell 7.6% while Standard Chartered down 7.4%. In
Seoul, Shinhan Financial was down 6.3%, while ICICI Bank shed 5.7%
in Mumbai.
Foreign exchange markets saw a broad move out of currencies
perceived as more risk sensitive, with the Australian and New
Zealand dollars hit in particular along with the euro, as the
European markets’ reaction to the Dubai news reversed the recent
‘risk on’ profile of the market.
Japanese exporter stocks were weaker as the yen’s climb against the
U.S. dollar reached heights not seen in almost 15 years. The dollar
fell below ¥86 in early trade and hit a 14-year low of ¥84.82
before recovering some ground midday.
Japan’s finance minister Hirohisa Fujii stepped up his rhetoric
against excessive yen rises on Friday, calling the currency’s
recent climb “one-sided” and threatening to intervene in
foreign-exchange markets if the rapid ascent continues. “If this
kind of situation is sustained, I think that it would be something
abnormal … it would be possible for us to take” steps under such
conditions, he said.
But Societe Generale’s Mr. Bennett said intervention is unlikely
for now. “Japanese official comments have been prominent on the
newswires and while more specific in tone than the last couple of
days, we would still expect some ratcheting higher in tone before
physical action is taken,” he said.
Mizuho Securities market analyst Yukio Takahashi said that many
Japanese exporters have based their earnings outlooks on the
assumption of the U.S. dollar at ¥90, with few conservative firms
basing theirs on ¥85. Honda Motor was down 3.3%, Toyota Motor was
off 2.1%, Sharp fell 3.0% and Nikon was off 4.0%.
The risk-averse trade dragged the Australian dollar lower to
US$0.9038. The New Zealand dollar fell to US$0.7103.
The U.S. dollar was buying ¥86.04 compared with ¥86.49 in
mid-afternoon trade in Toronto Thursday. The euro was at $1.4855
compared with $1.5009, and at ¥127.86 from ¥129.74.
But some analysts suggested that the selloff in equities,
higher-yielding currencies and commodities was a little overdone.
“Everyone has gone into panic mode but this is Dubai — it’s not
going to send the world into a tailspin,” said Patersons Senior
Client Advisor Chris Blair, in Sydney.
Taiwan shares were down 1.6%, Philippine shares fell 1.2% and
Thailand stocks slipped 1.0%. New Zealand’s NZX-50 lost 1.3%.
Resource stocks were also taking a hit as the general pull back
from risk sent commodities prices lower. Rio Tinto was down 3% and
BHP Billiton fell 3.4% in Sydney. In Tokyo, Sumitomo Metal Mining
fell 6.3% and Aluminum Corp. of China sank 5.9%.
Lead December Japanese government bond futures were higher on the
stronger yen and weakness in the Nikkei 225. Futures were up 0.32
at 139.82 points. The 10-year cash JGB yield was down 3.5 basis
points at 1.245%.
Spot gold was recently trading at $1,144.60 per troy ounce, down
$47.50 a troy ounce from the London afternoon fixing. – WSJ
Republished from Wall Street Journal on 27 November 2009<!-- /
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